UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-33887
Orion Energy Systems, Inc.
(Exact name of Registrant as specified in its charter)
Wisconsin | 39-1847269 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification number) |
2210 Woodland Drive, Manitowoc, Wisconsin | 54220 | |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (920) (920) 892-9340
Securities registered pursuant to Section 12(b) of the act:
Title of Each Class | Trading Symbol (s) | Name of Each Exchange on Which Registered | ||
Common stock, no par value | OESX | The Nasdaq Stock Market LLC (NASDAQ Capital Market) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging growth company". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | |||
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were 28,921,17032,502,558 shares of the Registrant’s common stock outstanding on February 2, 2018.
ORION ENERGY SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
TABLE OF CONTENTS
Page(s) | ||
ITEM 1. | ||
5 | ||
6 | ||
7 | ||
ITEM 2. | 20 | |
ITEM 3. | 27 | |
ITEM 4. | 27 | |
28 | ||
ITEM 1. | 28 | |
ITEM 1A. | 28 | |
ITEM 2. | 28 | |
ITEM 5. | 28 | |
ITEM 6. | 29 | |
30 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, 2017 | March 31, 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 10,563 | $ | 17,307 | |||
Accounts receivable, net | 8,663 | 9,171 | |||||
Inventories, net | 8,771 | 13,593 | |||||
Deferred contract costs | 1,115 | 935 | |||||
Prepaid expenses and other current assets | 1,543 | 2,877 | |||||
Total current assets | 30,655 | 43,883 | |||||
Property and equipment, net | 13,213 | 13,786 | |||||
Other intangible assets, net | 3,054 | 4,207 | |||||
Other long-term assets | 121 | 175 | |||||
Total assets | $ | 47,043 | $ | 62,051 | |||
Liabilities and Shareholders’ Equity | |||||||
Accounts payable | $ | 11,685 | $ | 11,635 | |||
Accrued expenses and other | 5,155 | 5,988 | |||||
Deferred revenue, current | 277 | 621 | |||||
Current maturities of long-term debt | 85 | 152 | |||||
Total current liabilities | 17,202 | 18,396 | |||||
Revolving credit facility | 3,622 | 6,629 | |||||
Long-term debt, less current maturities | 125 | 190 | |||||
Deferred revenue, long-term | 946 | 944 | |||||
Other long-term liabilities | 509 | 442 | |||||
Total liabilities | 22,404 | 26,601 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at December 31, 2017 and March 31, 2017; no shares issued and outstanding at December 31, 2017 and March 31, 2017 | — | — | |||||
Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2017 and March 31, 2017; shares issued: 38,347,325 at December 31, 2017 and 37,747,227 at March 31, 2017; shares outstanding: 28,916,170 at December 31, 2017 and 28,317,490 at March 31, 2017 | — | — | |||||
Additional paid-in capital | 154,758 | 153,901 | |||||
Treasury stock, common shares: 9,431,155 at December 31, 2017 and 9,429,737 at March 31, 2017 | (36,085 | ) | (36,081 | ) | |||
Shareholder notes receivable | — | (4 | ) | ||||
Retained deficit | (94,034 | ) | (82,366 | ) | |||
Total shareholders’ equity | 24,639 | 35,450 | |||||
Total liabilities and shareholders’ equity | $ | 47,043 | $ | 62,051 |
|
| June 30, 2023 |
|
| March 31, 2023 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 8,249 |
|
| $ | 15,992 |
|
Accounts receivable, net |
|
| 14,613 |
|
|
| 13,728 |
|
Revenue earned but not billed |
|
| 1,231 |
|
|
| 1,320 |
|
Inventories, net |
|
| 17,689 |
|
|
| 18,205 |
|
Prepaid expenses and other current assets |
|
| 1,172 |
|
|
| 1,116 |
|
Total current assets |
|
| 42,954 |
|
|
| 50,361 |
|
Property and equipment, net |
|
| 10,534 |
|
|
| 10,470 |
|
Goodwill |
|
| 1,484 |
|
|
| 1,484 |
|
Other intangible assets, net |
|
| 5,738 |
|
|
| 6,004 |
|
Other long-term assets |
|
| 3,436 |
|
|
| 3,260 |
|
Total assets |
| $ | 64,146 |
|
| $ | 71,579 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
| ||
Accounts payable |
| $ | 11,524 |
|
| $ | 13,405 |
|
Accrued expenses and other |
|
| 10,045 |
|
|
| 10,552 |
|
Deferred revenue, current |
|
| 732 |
|
|
| 480 |
|
Current maturities of long-term debt |
|
| 16 |
|
|
| 17 |
|
Total current liabilities |
|
| 22,317 |
|
|
| 24,454 |
|
Revolving credit facility |
|
| 10,000 |
|
|
| 10,000 |
|
Long-term debt, less current maturities |
|
| — |
|
|
| 3 |
|
Deferred revenue, long-term |
|
| 470 |
|
|
| 489 |
|
Other long-term liabilities |
|
| 4,558 |
|
|
| 3,384 |
|
Total liabilities |
|
| 37,345 |
|
|
| 38,330 |
|
Commitments and contingencies |
|
|
|
|
|
| ||
Shareholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at |
|
| — |
|
|
| — |
|
Common stock, no par value: Shares authorized: 200,000,000 at |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 161,095 |
|
|
| 160,907 |
|
Treasury stock, common shares: 9,470,985 at June 30, 2023 and 9,471,684 |
|
| (36,236 | ) |
|
| (36,237 | ) |
Retained deficit |
|
| (98,058 | ) |
|
| (91,421 | ) |
Total shareholders’ equity |
|
| 26,801 |
|
|
| 33,249 |
|
Total liabilities and shareholders’ equity |
| $ | 64,146 |
|
| $ | 71,579 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
3
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Product revenue | $ | 15,993 | $ | 19,259 | $ | 41,883 | $ | 52,286 | |||||||
Service revenue | 1,270 | 1,358 | 3,360 | 2,635 | |||||||||||
Total revenue | 17,263 | 20,617 | 45,243 | 54,921 | |||||||||||
Cost of product revenue | 11,181 | 13,577 | 30,587 | 36,748 | |||||||||||
Cost of service revenue | 966 | 885 | 3,209 | 1,748 | |||||||||||
Total cost of revenue | 12,147 | 14,462 | 33,796 | 38,496 | |||||||||||
Gross profit | 5,116 | 6,155 | 11,447 | 16,425 | |||||||||||
Operating expenses: | |||||||||||||||
General and administrative | 2,878 | 3,541 | 11,370 | 11,040 | |||||||||||
Impairment of intangible assets | — | — | 710 | — | |||||||||||
Sales and marketing | 2,981 | 3,147 | 9,241 | 9,167 | |||||||||||
Research and development | 616 | 495 | 1,519 | 1,493 | |||||||||||
Total operating expenses | 6,475 | 7,183 | 22,840 | 21,700 | |||||||||||
Loss from operations | (1,359 | ) | (1,028 | ) | (11,393 | ) | (5,275 | ) | |||||||
Other income (expense): | |||||||||||||||
Other income | — | — | — | 190 | |||||||||||
Interest expense | (102 | ) | (65 | ) | (308 | ) | (203 | ) | |||||||
Interest income | 5 | 7 | 12 | 31 | |||||||||||
Total other (expense) income | (97 | ) | (58 | ) | (296 | ) | 18 | ||||||||
Loss before income tax | (1,456 | ) | (1,086 | ) | (11,689 | ) | (5,257 | ) | |||||||
Income tax benefit | (23 | ) | — | (23 | ) | (261 | ) | ||||||||
Net loss | $ | (1,433 | ) | $ | (1,086 | ) | $ | (11,666 | ) | $ | (4,996 | ) | |||
Basic net loss per share attributable to common shareholders | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) | |||
Weighted-average common shares outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 | |||||||||||
Diluted net loss per share | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) | |||
Weighted-average common shares and share equivalents outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 |
|
| Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Product revenue |
| $ | 13,671 |
|
| $ | 13,483 |
|
Service revenue |
|
| 3,942 |
|
|
| 4,423 |
|
Total revenue |
|
| 17,613 |
|
|
| 17,906 |
|
Cost of product revenue |
|
| 10,059 |
|
|
| 10,385 |
|
Cost of service revenue |
|
| 4,383 |
|
|
| 3,967 |
|
Total cost of revenue |
|
| 14,442 |
|
|
| 14,352 |
|
Gross profit |
|
| 3,171 |
|
|
| 3,554 |
|
Operating expenses: |
|
|
|
|
|
| ||
General and administrative |
|
| 5,739 |
|
|
| 3,754 |
|
Acquisition related costs |
|
| 53 |
|
|
| 14 |
|
Sales and marketing |
|
| 3,296 |
|
|
| 2,889 |
|
Research and development |
|
| 480 |
|
|
| 514 |
|
Total operating expenses |
|
| 9,568 |
|
|
| 7,171 |
|
Loss from operations |
|
| (6,397 | ) |
|
| (3,617 | ) |
Other income (expense): |
|
|
|
|
|
| ||
Other income |
|
| — |
|
|
| (1 | ) |
Interest expense |
|
| (176 | ) |
|
| (17 | ) |
Amortization of debt issue costs |
|
| (24 | ) |
|
| (15 | ) |
Interest income |
|
| 2 |
|
|
| — |
|
Total other expense |
|
| (198 | ) |
|
| (33 | ) |
Loss before income tax |
|
| (6,595 | ) |
|
| (3,650 | ) |
Income tax expense |
|
| 42 |
|
|
| (815 | ) |
Net loss |
| $ | (6,637 | ) |
| $ | (2,835 | ) |
Basic net loss per share attributable to |
| $ | (0.21 | ) |
| $ | (0.09 | ) |
Weighted-average common shares outstanding |
|
| 32,345,823 |
|
|
| 31,138,398 |
|
Diluted net loss per share |
| $ | (0.21 | ) |
| $ | (0.09 | ) |
Weighted-average common shares and share |
|
| 32,345,823 |
|
|
| 31,138,398 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
4
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(in thousands)
Nine Months Ended December 31, | |||||||
2017 | 2016 | ||||||
Operating activities | |||||||
Net loss | $ | (11,666 | ) | $ | (4,996 | ) | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||
Depreciation | 1,050 | 1,103 | |||||
Amortization | 486 | 721 | |||||
Stock-based compensation | 868 | 1,252 | |||||
Impairment of intangible assets | 710 | — | |||||
Loss on sale of property and equipment | — | 1 | |||||
Provision for inventory reserves | 701 | 621 | |||||
Provision for bad debts | 21 | 118 | |||||
Other | 12 | 148 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, current and long-term | 492 | (857 | ) | ||||
Inventories | 4,120 | (169 | ) | ||||
Deferred contract costs | (179 | ) | (1,296 | ) | |||
Prepaid expenses and other assets | 1,383 | 3,294 | |||||
Accounts payable | 30 | 602 | |||||
Accrued expenses and other | (767 | ) | (661 | ) | |||
Deferred revenue, current and long-term | (342 | ) | 385 | ||||
Net cash (used in) provided by operating activities | (3,081 | ) | 266 | ||||
Investing activities | |||||||
Purchases of property and equipment | (478 | ) | (376 | ) | |||
Additions to patents and licenses | (43 | ) | (252 | ) | |||
Proceeds from sales of property, plant and equipment | — | 2,600 | |||||
Net cash (used in) provided by investing activities | (521 | ) | 1,972 | ||||
Financing activities | |||||||
Payment of long-term debt and capital leases | (132 | ) | (814 | ) | |||
Proceeds from revolving credit facility | 51,926 | 63,705 | |||||
Payment of revolving credit facility | (54,933 | ) | (61,542 | ) | |||
Payments to settle employee tax withholdings on stock-based compensation | (9 | ) | (17 | ) | |||
Net proceeds from employee equity exercises | 6 | 6 | |||||
Net cash (used in) provided by financing activities | (3,142 | ) | 1,338 | ||||
Net (decrease) increase in cash and cash equivalents | (6,744 | ) | 3,576 | ||||
Cash and cash equivalents at beginning of period | 17,307 | 15,542 | |||||
Cash and cash equivalents at end of period | $ | 10,563 | $ | 19,118 |
|
| Shareholders’ Equity |
| |||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Shares |
|
| Additional |
|
| Treasury |
|
| Retained |
|
| Total |
| |||||
Balance, March 31, 2023 |
|
| 32,295,408 |
|
| $ | 160,907 |
|
| $ | (36,237 | ) |
| $ | (91,421 | ) |
| $ | 33,249 |
|
Shares issued under Employee Stock Purchase |
|
| 699 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 206,451 |
|
|
| 188 |
|
|
| — |
|
|
| — |
|
|
| 188 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,637 | ) |
|
| (6,637 | ) |
Balance, June 30, 2023 |
|
| 32,502,558 |
|
| $ | 161,095 |
|
| $ | (36,236 | ) |
| $ | (98,058 | ) |
| $ | 26,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shareholders’ Equity |
| |||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Shares |
|
| Additional |
|
| Treasury |
|
| Retained |
|
| Total |
| |||||
Balance, March 31, 2022 |
|
| 31,097,872 |
|
| $ | 158,419 |
|
| $ | (36,239 | ) |
| $ | (57,080 | ) |
| $ | 65,100 |
|
Exercise of stock options for cash |
|
| 26,646 |
|
|
| 54 |
|
|
| — |
|
|
| — |
|
|
| 54 |
|
Shares issued under Employee Stock Purchase |
|
| 443 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| 125,744 |
|
|
| 254 |
|
|
| — |
|
|
| — |
|
|
| 254 |
|
Employee tax withholdings on stock-based |
|
| (634 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,835 | ) |
|
| (2,835 | ) |
Balance, June 30, 2022 |
|
| 31,250,071 |
|
| $ | 158,727 |
|
| $ | (36,240 | ) |
| $ | (59,915 | ) |
| $ | 62,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
5
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (6,637 | ) |
| $ | (2,835 | ) |
Adjustments to reconcile net loss to net cash used in |
|
|
|
|
|
| ||
Depreciation |
|
| 346 |
|
|
| 354 |
|
Amortization of intangible assets |
|
| 266 |
|
|
| 52 |
|
Stock-based compensation |
|
| 188 |
|
|
| 254 |
|
Amortization of debt issue costs |
|
| 24 |
|
|
| 15 |
|
Deferred income tax |
|
| — |
|
|
| (978 | ) |
Loss (gain) on sale of property and equipment |
|
| 28 |
|
|
| (1 | ) |
Provision for inventory reserves |
|
| 161 |
|
|
| 100 |
|
Provision for credit losses |
|
| 190 |
|
|
| — |
|
Other |
|
| 1 |
|
|
| (9 | ) |
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (1,075 | ) |
|
| 109 |
|
Revenue earned but not billed |
|
| 89 |
|
|
| 527 |
|
Inventories |
|
| 355 |
|
|
| 979 |
|
Prepaid expenses and other assets |
|
| (257 | ) |
|
| 160 |
|
Accounts payable |
|
| (1,906 | ) |
|
| (2,491 | ) |
Accrued expenses and other |
|
| 666 |
|
|
| (1,273 | ) |
Deferred revenue, current and long-term |
|
| 234 |
|
|
| 32 |
|
Net cash used in operating activities |
|
| (7,327 | ) |
|
| (5,005 | ) |
Investing activities |
|
|
|
|
|
| ||
Cash to fund acquisition, net of cash received |
|
| — |
|
|
| 55 |
|
Purchases of property and equipment |
|
| (508 | ) |
|
| (139 | ) |
Additions to patents and licenses |
|
| — |
|
|
| (1 | ) |
Proceeds from sale of property, plant and equipment |
|
| 95 |
|
|
| — |
|
Net cash used in investing activities |
|
| (413 | ) |
|
| (85 | ) |
Financing activities |
|
|
|
|
|
| ||
Payment of long-term debt |
|
| (4 | ) |
|
| (4 | ) |
Proceeds from revolving credit facility |
|
| — |
|
|
| — |
|
Payments of revolving credit facility |
|
| — |
|
|
| — |
|
Payments to settle employee tax withholdings on stock-based compensation |
|
| — |
|
|
| (2 | ) |
Proceeds from employee equity exercises |
|
| 1 |
|
|
| 54 |
|
Net cash (used in) provided by financing activities |
|
| (3 | ) |
|
| 48 |
|
Net decrease in cash and cash equivalents |
|
| (7,743 | ) |
|
| (5,042 | ) |
Cash and cash equivalents at beginning of period |
|
| 15,992 |
|
|
| 14,466 |
|
Cash and cash equivalents at end of period |
| $ | 8,249 |
|
| $ | 9,424 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
| ||
Operating lease assets obtained in exchange for new operating lease liabilities |
| $ | 363 |
|
| $ | — |
|
The accompanying notes are an integral part of these Condensed Consolidated Statements.
6
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATEDCONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturerprovides light emitting diode lighting systems, wireless Internet of Things enabled control solutions, project engineering, energy project management design, maintenance services and seller of lighting and energy management systemsturnkey electric vehicle charging station installation services to commercial and industrial businesses, and federal and local governments, predominantly in North America.
Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases office space in Jacksonville, Florida; Chicago, Illinois;Florida, Lawrence, Massachusetts and Houston, Texas. Orion also leases warehouse space in Manitowoc, Wisconsin and Augusta, Georgia.Pewaukee, Wisconsin.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission.Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentationstatement have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 20182024 or other interim periods.
The condensed consolidated balance sheet atCondensed Consolidated Balance Sheet as of March 31, 20172023 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements.
The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Orion’s Annual Report on Form 10-K for the fiscal year ended March 31, 20172023 filed with the Securities and Exchange CommissionSEC on June 13, 2017.12, 2023.
Allowance for Credit Losses
Orion performs ongoing evaluations of its customers and continuously monitors collections and payments. Orion estimates an allowance for credit losses based upon the historical collectability based on past due status and makes judgments about the creditworthiness of customers based on ongoing credit evaluations. We also consider customer-specific information, current market conditions, and reasonable and supportable forecasts of future economic conditions.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence, allowance for doubtful accounts,credit losses, accruals for warranty and loss contingencies, impairments,earn-out, income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.
7
Concentration of Credit Risk and Other Risks and Uncertainties
Orion's cash is primarily deposited with twoone financial institutions.institution. At times, deposits in these institutions exceedthis institution exceeds the amount of insurance provided on such deposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant financial institution viability risk on these balances.
Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components, from multiple suppliers. For the three months ended December 31, 2017, one supplier accounted for 13.9% of of total costs of revenue. For the nine months ended December 31, 2017, June 30, 2023 and June 30, 2022, no supplier suppliers accounted for more than 10%10.0% of total cost of revenue For the three and nine months ended December 31, 2016, no supplier accounted for more than 10% of total cost of revenue.
For the three months ended December 31, 2017, June 30, 2023, two customers accounted for 20.6% and 11.0% of total revenue, respectively. For the three months ended June 30, 2022, one customer accounted for 13.4%13.8% of total revenue. For the nine months ended December 31, 2017,
As of June 30, 2023, one customer accounted for 11.1% of total revenue. For the three and nine months ended December 31, 2016, no customer accounted for more than 10% of revenue.
Recent Accounting Pronouncements
Recently Adopted
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which provides clarification and additional guidance as to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU provides guidance as to the classification of a number of transactions including: contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The new standard will be effective for Orion in the first quarter of fiscal 2019 and will be applied through retrospective adjustment to all periods presented. Orion does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
NOTE 3 — REVENUE
Orion generates revenue primarily by selling manufactured or sourced commercial lighting fixtures and is in the process of quantifying the lease liabilitycomponents, sourced electric vehicle chargers and related right of use asset which will be recorded to its consolidated balance sheets upon adoption ofproducts, installing these products in customer’s facilities, and providing maintenance services including repairs and replacements for the standard. In addition, management continues to assesslighting and related electrical components. Orion recognizes revenue in accordance with the impact of adoption of this standard on its consolidated statements of operations, cash flows, and the related footnote disclosures.
During the third quarter of fiscal 2023, Orion acquired Voltrek LLC ("Voltrek"), which sells and expanded financial statement disclosures. Sinceinstalls sourced electric vehicle charging stations and related software subscriptions and renewals. The results of Voltrek are included in the issuanceOrion Electric Vehicle Charging segment ("EV") and compliment Orion’s existing turnkey installation model.
The sale of this ASU,charging stations and related software subscriptions and renewals is presented in Product revenue. Orion is the FASBprincipal in the sales of charging stations as it has issued further updatescontrol of the physical products prior to this ASU to provide additional guidance and clarification and to delay the original effective date. This ASU allows companies to elect either a full retrospective or modified retrospective approach to adoption. Orion will adopt this ASU and the related updates (“ASC 606”) on their effective date, April 1, 2018. As of December 31, 2017, Orion has identified that the main types of contracts that require evaluation as to what, if any, changes will be necessary under ASC 606 as compared to legacy accounting guidance are (a) material only sales that are shipped to customers from Orion’s plant or directly from Orion’s vendors, (b) contracts that involve a combination of material and installation services, (c) contracts entered into under Orion's legacy solar business, and (d) contracts that involve a combination of material and installation services where Orion also provides a financing arrangementtransfer to the customer.
The sale of revenue recognition and the cost of goodsinstallation and services sold. The review considers, among other matters,related to the evaluationEV charging business is presented in Service revenue. Revenue from the EV segment that includes both the sale of product and identification of distinctservice is allocated between the product and service performance obligations measurementbased on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the Condensed Consolidated Statement of Orion's progress toward satisfying identifiedOperations.
8
Revenue from the maintenance offering that includes both the sale of Orion manufactured or sourced product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and variable considerationis recorded in Product revenue and Service revenue, respectively, in the formCondensed Consolidated Statement of Operations.
The following tables provide detail of Orion’s total revenue for the three months ended June 30, 2023 and June 30, 2022 (dollars in thousands):
|
| Three Months Ended June 30, 2023 |
| |||||||||
|
| Product |
|
| Services |
|
| Total |
| |||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
| |||
Lighting product and installation |
| $ | 11,785 |
|
| $ | 831 |
|
| $ | 12,616 |
|
Maintenance services |
|
| 899 |
|
|
| 2,855 |
|
|
| 3,754 |
|
Electric vehicle charging |
|
| 982 |
|
|
| 256 |
|
|
| 1,238 |
|
Total revenues from contracts with customers |
|
| 13,666 |
|
|
| 3,942 |
|
|
| 17,608 |
|
Revenue accounted for under other guidance |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Total revenue |
| $ | 13,671 |
|
| $ | 3,942 |
|
| $ | 17,613 |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Three Months Ended June 30, 2022 |
| |||||||||
|
| Product |
|
| Services |
|
| Total |
| |||
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
| |||
Lighting product and installation |
| $ | 12,404 |
|
| $ | 1,358 |
|
| $ | 13,762 |
|
Maintenance services |
|
| 989 |
|
|
| 3,065 |
|
|
| 4,054 |
|
Solar energy related revenues |
|
| — |
|
|
| — |
|
|
| 0 |
|
Total revenues from contracts with customers |
|
| 13,393 |
|
|
| 4,423 |
|
|
| 17,816 |
|
Revenue accounted for under other guidance |
|
| 90 |
|
|
| — |
|
|
| 90 |
|
Total revenue |
| $ | 13,483 |
|
| $ | 4,423 |
|
| $ | 17,906 |
|
From time to time, Orion sells the receivables from one customer rebates, payment discounts and product returns.to a financing institution. The Company's assessment is preliminary and may change as it finalizes its review. Since Orion does not expect ASC 606 to impactwas no such activity during the timingthree months ended June 30, 2023 or 2022.
The following chart shows the balance of its billings toOrion’s receivables arising from contracts with customers, or the receipt of customer payments, there could be fluctuations in the amount of deferred costs and liabilities reflected on Orion's future balance sheets as compared to historical presentations.
|
| June 30, |
|
| March 31, |
| ||
Accounts receivable, net |
| $ | 14,613 |
|
| $ | 13,728 |
|
Contract assets |
| $ | 1,231 |
|
| $ | 1,320 |
|
Contract liabilities |
| $ | 657 |
|
| $ | 480 |
|
There were no significant changes in its ongoing process for the reviewcontract assets outside of standard reclassifications to accounts receivable, net upon billing. Deferred revenue, current as of June 30, 2023 and March 31, 2023, includes $0.7 million and $0.5 million, respectively, of contract liabilities which represent consideration received from a new customer contractscontract on which installation has not yet begun and Orion has not fulfilled the identification of key terms impacting revenue recognition. Orion is also evaluating the necessary changes to its systems, revenue related processes and controls as a result of the new standard, including the related footnote disclosures.promises included.
NOTE 34 — ACCOUNTS RECEIVABLE,
As of June 30, 2023 and March 31, 2023, Orion's accounts receivable and allowance for doubtful accountscredit losses balances were as follows (dollars in thousands):
|
| June 30, |
|
| March 31, |
| ||
Accounts receivable, gross |
| $ | 14,885 |
|
| $ | 13,814 |
|
Allowance for credit losses |
|
| (272 | ) |
|
| (86 | ) |
Accounts receivable, net |
| $ | 14,613 |
|
| $ | 13,728 |
|
9
Changes in Orion’s allowance for credit losses were as follows (dollars in thousands):
|
| For the Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Beginning of period |
| $ | (86 | ) |
| $ | (8 | ) |
Credit loss expense |
|
| (190 | ) |
|
| (10 | ) |
Write-off |
|
| 4 |
|
|
| — |
|
End of period |
| $ | (272 | ) |
| $ | (18 | ) |
December 31, 2017 | March 31, 2017 | ||||||
Accounts receivable, gross | $ | 8,827 | $ | 9,315 | |||
Allowance for doubtful accounts | (164 | ) | (144 | ) | |||
Accounts receivable, net | $ | 8,663 | $ | 9,171 |
NOTE 45 — INVENTORIES,
As of December 31, 2017June 30, 2023 and March 31, 2017,2023, Orion's inventory balances were as follows (dollars in thousands):
|
| Cost |
|
| Excess and |
|
| Net |
| |||
As of June 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Raw materials and components |
| $ | 8,050 |
|
| $ | (1,171 | ) |
| $ | 6,879 |
|
Work in process |
|
| 631 |
|
|
| (173 | ) |
|
| 458 |
|
Finished goods |
|
| 10,938 |
|
|
| (586 | ) |
|
| 10,352 |
|
Total |
| $ | 19,619 |
|
| $ | (1,930 | ) |
| $ | 17,689 |
|
|
|
|
|
|
|
|
|
| ||||
As of March 31, 2023 |
|
|
|
|
|
|
|
|
| |||
Raw materials and components |
| $ | 9,988 |
|
| $ | (1,094 | ) |
| $ | 8,894 |
|
Work in process |
|
| 693 |
|
|
| (135 | ) |
|
| 558 |
|
Finished goods |
|
| 9,313 |
|
|
| (560 | ) |
|
| 8,753 |
|
Total |
| $ | 19,994 |
|
| $ | (1,789 | ) |
| $ | 18,205 |
|
Cost | Reserve | Net | |||||||||
As of December 31, 2017 | |||||||||||
Raw materials and components | $ | 6,655 | $ | (1,406 | ) | $ | 5,249 | ||||
Work in process | 1,316 | (351 | ) | 965 | |||||||
Finished goods | 4,385 | (1,828 | ) | 2,557 | |||||||
Total | $ | 12,356 | $ | (3,585 | ) | $ | 8,771 | ||||
As of March 31, 2017 | |||||||||||
Raw materials and components | $ | 8,104 | $ | (1,807 | ) | $ | 6,297 | ||||
Work in process | 1,918 | (329 | ) | 1,589 | |||||||
Finished goods | 7,044 | (1,337 | ) | 5,707 | |||||||
Total | $ | 17,066 | $ | (3,473 | ) | $ | 13,593 |
NOTE 56 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets includeconsist primarily of prepaid insurance premiums, debt issue costs, prepaid subscription fees and sales tax receivable.
NOTE 7 — PROPERTY AND EQUIPMENT, NET
As of June 30, 2023 and March 31, 2023, property and equipment, net, included the following (dollars in thousands): June 30, March 31, Land and land improvements $ 433 $ 433 Buildings and building improvements 9,491 9,491 Furniture, fixtures and office equipment 7,783 7,782 Leasehold improvements 540 540 Equipment leased to customers 4,997 4,997 Plant equipment 11,195 11,234 Vehicles 948 720 Construction in Progress 121 37 Gross property and equipment 35,508 35,234 Less: accumulated depreciation (24,974 ) (24,764 ) Total property and equipment, net $ 10,534 $ 10,470 10
2023
2023
December 31, 2017 | March 31, 2017 | ||||||
Unbilled accounts receivable | $ | 1,034 | $ | 2,226 | |||
Other prepaid expenses | 509 | 651 | |||||
Total | $ | 1,543 | $ | 2,877 |
NOTE 68 — PROPERTY AND EQUIPMENT
From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.
Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and equipment were comprisedoperating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the following (dollars in thousands):
December 31, 2017 | March 31, 2017 | ||||||
Land and land improvements | $ | 424 | $ | 424 | |||
Buildings and building improvements | 9,245 | 9,245 | |||||
Furniture, fixtures and office equipment | 7,083 | 7,056 | |||||
Leasehold improvements | 324 | 324 | |||||
Equipment leased to customers | 4,997 | 4,997 | |||||
Plant equipment | 11,888 | 11,627 | |||||
Construction in progress | 196 | 61 | |||||
34,157 | 33,734 | ||||||
Less: accumulated depreciation and amortization | (20,944 | ) | (19,948 | ) | |||
Property and equipment, net | $ | 13,213 | $ | 13,786 |
A summary of lower than anticipated operating results in the first half of fiscal 2018, Orion revised its full year fiscal 2018 forecast. As such, a triggering event occurred as of September 30, 2017, requiring Orion to evaluate its long-livedOrion’s assets for impairment. Due to the central nature of its operations, Orion’s tangible and intangible definite-lived assets support its full operations, are utilized by all three of its reportable segments, and do not generate separately identifiable cash flows. As such, these assets together represent a single asset group. In reviewing the asset group for impairment, Orion elected to bypass the qualitative impairment assessment and went directly to performing the Step 1 recoverability test. Orion performed the Step 1 recoverability test for the asset group comparing its carrying value to the group’s expected future undiscounted cash flows. Orion concluded that the undiscounted cash flows of the definite lived asset group exceeded its carrying value. As such the asset group was deemed recoverable and no impairment was recorded. No triggering event occurred in the quarter ended December 31, 2017, so no impairment review was conducted.
|
| Balance sheet classification |
| June 30, 2023 |
|
| March 31, 2023 |
| ||
Assets |
|
|
|
|
|
|
|
| ||
Operating lease assets |
| Other long-term assets |
| $ | 2,349 |
|
| $ | 2,174 |
|
Liabilities |
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
|
| ||
Operating lease liabilities |
| Accrued expenses and other |
| $ | 923 |
|
| $ | 823 |
|
Non-current liabilities |
|
|
|
|
|
|
|
| ||
Operating lease liabilities |
| Other long-term liabilities |
|
| 1,870 |
|
|
| 1,826 |
|
Total lease liabilities |
|
|
| $ | 2,793 |
|
| $ | 2,649 |
|
December 31, 2017 | March 31, 2017 | ||||||
Equipment | $ | 581 | $ | 581 | |||
Less: accumulated depreciation and amortization | (308 | ) | (202 | ) | |||
Equipment, net | $ | 273 | $ | 379 |
Orion recorded depreciation expensehad operating lease costs of $0.4 and $1.1$0.4 million for the three and nine months ended December 31, 2017, respectively, and $0.3 and $1.1June 30, 2023. Orion had operating lease costs of $0.3 million for the three and nine months ended DecemberJune 30, 2022.
The estimated maturity of lease liabilities for each of the next five years is shown below (dollars in thousands):
Maturity of Lease Liabilities |
| Operating Leases |
| |
Fiscal 2024 (period remaining) |
| $ | 785 |
|
Fiscal 2025 |
|
| 1,083 |
|
Fiscal 2026 |
|
| 984 |
|
Fiscal 2027 |
|
| 177 |
|
Fiscal 2028 |
|
| — |
|
Thereafter |
|
| — |
|
Total lease payments |
| $ | 3,029 |
|
Less: Interest |
|
| (236 | ) |
Present value of lease liabilities |
| $ | 2,793 |
|
Assets Orion Leases to Other Parties
One of Orion’s frequent customers purchases products and installation services under agreements that provide for monthly payments, at a fixed monthly amount, of the contract price, plus interest, typically over a five-year period. While Orion retains ownership of the light fixtures during the financing period, the transaction terms and the underlying economics associated with used lighting fixtures results in Orion essentially ceding ownership of the lighting fixtures to the customer after completion of the agreement. The portions of the transaction associated with the sale of the light fixtures is accounted for as a sales-type lease under ASC 842. The total transaction price in these contracts is allocated between the lease and non-lease components in the same manner as the total transaction price of other turnkey projects containing lighting fixtures and installation services.
Revenues, and production and acquisition costs, associated with sales-type leases are included in Product revenue and Costs of product revenues in the Condensed Consolidated Statement of Operations. There was no revenue and cost of sales arising from sales-type leases during the three months ended June 30, 2023 and June 30, 2022.
11
NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Orion has $0.9 million of goodwill related to its purchase of Voltrek in the third quarter of fiscal 2023, which has an indefinite life, and is assigned to the EV Charging operating segment.
Orion has $0.6 million of goodwill related to its purchase of Stay-Light Lighting during fiscal year 2022, which has an indefinite life, and is assigned to the Maintenance operating segment.
See Note 18 – Acquisition for further discussion of the Voltrek acquisition.
As of June 30, 2023 and March 31, 2016, respectively.
|
| June 30, 2023 |
|
| March 31, 2023 |
| ||||||||||||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Weighted |
|
| Gross |
|
| Accumulated |
|
| Net |
| |||||||
Amortized Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Patents |
| $ | 2,521 |
|
| $ | (1,956 | ) |
| $ | 565 |
|
|
| 8.5 |
|
| $ | 2,521 |
|
| $ | (1,930 | ) |
| $ | 591 |
|
Licenses |
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
|
| — |
|
|
| 58 |
|
|
| (58 | ) |
|
| — |
|
Trade name and trademarks |
|
| 464 |
|
|
| (94 | ) |
|
| 370 |
|
|
| 4.0 |
|
|
| 464 |
|
|
| (73 | ) |
|
| 391 |
|
Customer relationships |
|
| 5,509 |
|
|
| (4,041 | ) |
|
| 1,468 |
|
|
| 6.3 |
|
|
| 5,509 |
|
|
| (3,914 | ) |
|
| 1,595 |
|
Vendor relationships |
|
| 2,600 |
|
|
| (275 | ) |
|
| 2,325 |
|
|
| 3.4 |
|
|
| 2,600 |
|
|
| (183 | ) |
|
| 2,417 |
|
Developed technology |
|
| 900 |
|
|
| (900 | ) |
|
| — |
|
|
| — |
|
|
| 900 |
|
|
| (900 | ) |
|
| — |
|
Total Amortized Intangible Assets |
| $ | 12,052 |
|
| $ | (7,324 | ) |
| $ | 4,728 |
|
|
| 5.5 |
|
| $ | 12,052 |
|
| $ | (7,058 | ) |
| $ | 4,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Indefinite-lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Trade name and trademarks |
| $ | 1,010 |
|
| $ | — |
|
| $ | 1,010 |
|
|
|
|
| $ | 1,010 |
|
| $ | — |
|
| $ | 1,010 |
| |
Total Non-Amortized Intangible Assets |
| $ | 1,010 |
|
| $ | — |
|
| $ | 1,010 |
|
|
|
|
| $ | 1,010 |
|
| $ | — |
|
| $ | 1,010 |
|
December 31, 2017 | March 31, 2017 | ||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Patents | $ | 2,702 | $ | (1,331 | ) | $ | 1,371 | $ | 2,658 | $ | (1,211 | ) | $ | 1,447 | |||||||||
Licenses | 58 | (58 | ) | — | 58 | (58 | ) | — | |||||||||||||||
Trade name and trademarks | 1,005 | — | 1,005 | 1,715 | — | 1,715 | |||||||||||||||||
Customer relationships | 3,600 | (3,286 | ) | 314 | 3,600 | (3,054 | ) | 546 | |||||||||||||||
Developed technology | 900 | (546 | ) | 354 | 900 | (426 | ) | 474 | |||||||||||||||
Non-competition agreements | 100 | (90 | ) | 10 | 100 | (75 | ) | 25 | |||||||||||||||
Total | $ | 8,365 | $ | (5,311 | ) | $ | 3,054 | $ | 9,031 | $ | (4,824 | ) | $ | 4,207 |
Amortization expense on intangible assets was $0.2$0.3 million for both the three months ended December 31, 2017 and 2016.
Amortization expense on intangible assets was $0.5 and $0.7$0.1 million for the ninethree months ended December 31, 2017 and 2016,June 30, 2022, respectively.
The estimated amortization expense for the remainder of fiscal 2018,2024, the next five fiscal years and beyond is shown below (dollars in thousands):
Fiscal 2024 (period remaining) |
| $ | 820 |
|
Fiscal 2025 |
|
| 1,086 |
|
Fiscal 2026 |
|
| 848 |
|
Fiscal 2027 |
|
| 589 |
|
Fiscal 2028 |
|
| 518 |
|
Fiscal 2029 |
|
| 471 |
|
Thereafter |
|
| 396 |
|
Total |
| $ | 4,728 |
|
12
Fiscal 2018 (period remaining) | $ | 138 | |
Fiscal 2019 | 449 | ||
Fiscal 2020 | 363 | ||
Fiscal 2021 | 289 | ||
Fiscal 2022 | 191 | ||
Fiscal 2023 | 166 | ||
Thereafter | 453 | ||
Total | $ | 2,049 |
NOTE 810 — ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
As of June 30, 2023 and March 31, 2023, accrued expenses and other includeincluded the following (dollars in thousands):
|
| June 30, |
|
| March 31, |
| ||
Accrued acquisition earn-out |
| $ | 3,000 |
|
| $ | 3,000 |
|
Other accruals |
|
| 2,162 |
|
|
| 2,598 |
|
Compensation and benefits |
|
| 1,818 |
|
|
| 1,412 |
|
Credits due to customers |
|
| 1,122 |
|
|
| 1,310 |
|
Accrued project costs |
|
| 971 |
|
|
| 1,218 |
|
Warranty |
|
| 502 |
|
|
| 497 |
|
Sales returns reserve |
|
| 69 |
|
|
| 71 |
|
Sales tax |
|
| 325 |
|
|
| 274 |
|
Legal and professional fees |
|
| 76 |
|
|
| 172 |
|
Total |
| $ | 10,045 |
|
| $ | 10,552 |
|
December 31, 2017 | March 31, 2017 | ||||||
Compensation and benefits | $ | 1,823 | $ | 2,431 | |||
Sales tax | 202 | 213 | |||||
Contract costs | 515 | 223 | |||||
Legal and professional fees | 1,955 | 2,262 | |||||
Warranty | 347 | 449 | |||||
Other accruals | 313 | 410 | |||||
Total | $ | 5,155 | $ | 5,988 |
December 31, 2017 | March 31, 2017 | ||||||
Warranty | $ | 270 | $ | 310 | |||
Medical benefits | 126 | — | |||||
Unrecognized tax benefits | 113 | 113 | |||||
Other | — | 19 | |||||
Total | $ | 509 | $ | 442 |
Orion generally offers a limited warranty of one to ten years on its lighting products, in addition to thoseincluding the pass through of standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps, power supplies, LED modules, chips and drivers, control devices, and ballasts,other fixture related items, which are significant components in Orion's lighting products.
Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):
|
| For the Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Beginning of period |
| $ | 646 |
|
| $ | 860 |
|
Accruals |
|
| 64 |
|
|
| 167 |
|
Warranty claims (net of vendor reimbursements) |
|
| (56 | ) |
|
| (216 | ) |
End of period |
| $ | 654 |
|
| $ | 811 |
|
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning of period | $ | 739 | $ | 1,114 | $ | 759 | $ | 864 | |||||||
Provision to product cost of revenue | (122 | ) | (190 | ) | (138 | ) | 61 | ||||||||
Charges | — | (2 | ) | (4 | ) | (3 | ) | ||||||||
End of period | $ | 617 | $ | 922 | $ | 617 | $ | 922 |
NOTE 911 — NET LOSS PER COMMON SHARE
Basic net lossincome per common share is computed by dividing net lossincome attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.
Diluted net income per common share reflects the dilution that would occur if stock options were exercised and restricted shares vested. In the computation of diluted net income per common share, Orion uses the treasury stock method for outstanding options and restricted shares. For the three and nine months ended December 31, 2017June 30, 2023 and 2016,2022, Orion was in a net loss position; therefore, the basicBasic and diluted weighted averageDiluted weighted-average shares outstanding are equal because any increase to the basic shares would be anti-dilutive. Net loss(loss) income per common share is calculated based upon the following:following shares:
|
| For the Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss (in thousands) |
| $ | (6,637 | ) |
| $ | (2,835 | ) |
Denominator: |
|
|
|
|
|
| ||
Weighted-average common shares outstanding |
|
| 32,345,823 |
|
|
| 31,138,398 |
|
Weighted-average common shares and common share |
|
| 32,345,823 |
|
|
| 31,138,398 |
|
Net loss per common share: |
|
|
|
|
|
| ||
Basic |
| $ | (0.21 | ) |
| $ | (0.09 | ) |
Diluted |
| $ | (0.21 | ) |
| $ | (0.09 | ) |
13
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator: | |||||||||||||||
Net loss (in thousands) | $ | (1,433 | ) | $ | (1,086 | ) | $ | (11,666 | ) | $ | (4,996 | ) | |||
Denominator: | |||||||||||||||
Weighted-average common shares outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 | |||||||||||
Weighted-average common shares and common share equivalents outstanding | 28,909,847 | 28,258,742 | 28,734,394 | 28,106,209 | |||||||||||
Net loss per common share: | |||||||||||||||
Basic | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) | |||
Diluted | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.18 | ) |
The following table indicates the number of potentially dilutive securities excluded from the calculation of dilutedDiluted net lossincome per common share because their inclusion would have been anti-dilutive. The number of shares areis as of the end of each period:
|
| For the Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Common stock options |
|
| — |
|
|
| 115,782 |
|
Restricted shares |
|
| 582,506 |
|
|
| 1,081,452 |
|
Total |
|
| 582,506 |
|
|
| 1,197,234 |
|
December 31, 2017 | December 31, 2016 | ||||
Common stock options | 709,667 | 1,561,953 | |||
Restricted shares | 1,545,209 | 1,661,543 | |||
Total | 2,254,876 | 3,223,496 |
NOTE 10 — RELATED PARTY TRANSACTIONS
Long-term debt consisted of the following (dollars in thousands):
|
| June 30, |
|
| March 31, |
| ||
Revolving credit facility |
| $ | 10,000 |
|
| $ | 10,000 |
|
Equipment debt obligations |
|
| 16 |
|
|
| 20 |
|
Total long-term debt |
|
| 10,016 |
|
|
| 10,020 |
|
Less current maturities |
|
| (16 | ) |
|
| (17 | ) |
Long-term debt, less current maturities |
| $ | 10,000 |
|
| $ | 10,003 |
|
December 31, 2017 | March 31, 2017 | ||||||
Revolving credit facility | $ | 3,622 | $ | 6,629 | |||
Equipment lease obligations | 204 | 321 | |||||
Customer equipment finance notes payable | 6 | 7 | |||||
Other long-term debt | — | 14 | |||||
Total long-term debt | 3,832 | 6,971 | |||||
Less current maturities | (85 | ) | (152 | ) | |||
Long-term debt, less current maturities | $ | 3,747 | $ | 6,819 |
Revolving Credit Agreement
On December 29, 2020, Orion has an amendedentered into a new $25 million Loan and Security Agreement with Bank of America, N.A., as lender (the “Credit Agreement”). The Credit Agreement replaced Orion’s prior $20.15 million secured revolving credit and security agreement ("(the “Prior Credit Agreement"Agreement”) that.
The replacement of the Prior Credit Agreement with the Credit Agreement provides Orion with increased financing capacity and liquidity to fund its operations and implement its strategic plans.
The Credit Agreement provides for a five-year $25.0 million revolving credit facility ("(the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility")Facility are subject to a borrowing base requirement based on eligible receivables, inventory and inventory.cash. As of December 31, 2017, Orion'sJune 30, 2023, the borrowing base was approximately $3.8 million. Theof the Credit Facility has a maturity datesupports $18.6 million of February 6, 2019,availability, with $8.6 million of remaining availability net of $10.0 million borrowed.
Effective November 4, 2022, Orion, with Bank of America, N.A. as lender, executed Amendment No. 1 to its Credit Agreement. The primary purpose of the amendment was to include the assets of the acquired subsidiaries, Stay-Lite Lighting, Inc. ("Stay-Lite Lighting") and includes a $2.0 million sublimit for the issuance of letters of credit. As of December 31, 2017, Orion had no outstanding letters of credit. Borrowings outstandingVoltrek, as of December 31, 2017, amounted to approximately $3.6 million and are included in non-current liabilities in the accompanying condensed consolidated balance sheet. Orion estimates that as of December 31, 2017, it was eligible to borrow an additional $0.2 millionsecured collateral under the Credit Facility based upon current levelsAgreement. Accordingly, eligible assets of eligible inventoryStay-Lite and accounts receivable.
As of the end of each month, a minimum ratio for the trailing twelve-month period of (i) earnings before interest, taxes, depreciation and amortization, subject to certain adjustments, to (ii) the sum of cash interest expense, certain principal payments on indebtedness and certain dividends, distributions and stock redemptions, equal to at least 1.10 to 1.00. The Credit Agreement contains additional customary covenants, including certain restrictions on Orion’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on Orion’s stock, redeem or repurchase shares of Orion’s stock, or pledge or dispose of assets.June 30, 2023, Orion was in compliance with its covenants in the Credit Agreement as of December 31, 2017.
Equipment LeaseDebt Obligations
In March 2016 and June 2015,February 2019, Orion entered into leaseadditional debt agreements with a financing company in the principal amount of nineteen$44 thousand dollars and $0.4 million, respectively,$30 thousand to fund the purchase of certain equipment. The leasesdebts are secured by the related equipment. The leasesdebts bear interest at a rate of 5.9%6.43% and 3.6%,8.77% per annum, respectively, and both debts mature in February 2018 and June 2020. Both leases contain a one dollar buyout option.January 2024.
14
NOTE 1213 — INCOME TAXES
Orion’s income tax provision for the three months ended December 31, 2017 was determined by applying an estimated annual effective tax rate, of 1.6%based upon the facts and circumstances known, to lossbook income (loss) before income tax. The estimatedtax, adjusting for discrete items. Orion’s actual effective tax rate is adjusted each interim period, as appropriate, for changes in facts and circumstances. For the three month periodmonths ended December 31, 2016 was 0.1%. The estimated effectiveJune 30, 2023 and 2022, Orion recorded income tax rate was determined by applying statutory tax rates to pretax loss adjusted for certain permanent book to tax differencesexpense (benefit) of $42 thousand and tax credits.
As of DecemberJune 30, 2023 and March 31, 2017,2023, Orion had federal net operating loss carryforwards of approximately $80.6 million. Orion also had state net operating loss carryforwards of approximately $68.7 million. Orion also had federal tax credit carryforwards of approximately $1.4 million and state tax credits of $0.7 million. Orion's net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2020 and 2038. As of December 31, 2017, Orion had recorded a full valuation allowance of $24.0 million equaling theagainst its net deferred tax asset due to the uncertainty of its realizable value in the future.balance. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the deferred tax assets are able to be realized, an adjustment to the deferred tax asset would increase income in the period such determination is made.
As of each reporting date, management considers new evidence, both positive and Jobs Act ("Act") was enacted on December 22, 2017. The Act reducesnegative, that could affect its view of the U.S. federal corporatefuture realization of deferred tax rate from 35% to 21%, requires companies to pay a one-time transitionassets. Orion considers future taxable income and ongoing prudent and feasible tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. At December 31, 2017, Orion had not completed its accountingplanning strategies in assessing the need for the tax effectsvaluation allowance. In the event that Orion determines that the more or less of enactment of the Act; however, as described below, Orion has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.
Uncertain Tax Positions
As of December 31, 2017, theJune 30, 2023, Orion’s balance of gross unrecognized tax benefits was approximately $0.1$0.2 million, all of which would reduce Orion’s effective tax rate if recognized.
Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as otherOther long-term liabilities (non-current) to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax (benefit) expense. Penalties and interest are immaterial and are included in the unrecognized tax benefits.
NOTE 1314 — COMMITMENTS AND CONTINGENCIES
Litigation
Orion is subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, Orion is unable to currently assess whetherdoes not believe the final resolution of any of such claims or legal proceedings maywill have a material adverse effect on ourOrion’s future results of operations. In addition to ordinary-course litigation, Orion is a party to the proceedings described below.
State Tax Assessment
During the nine months ended December 31, 2017,fiscal year 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the period covering April 1, 2013 through March 31, 2017. Although the final resolution of the Company’sThis sales and use tax audit is uncertain, based on current information, inwas settled during the opinion of the Company’s management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s condensed consolidated balance sheet, statements of operations, or liquidity.quarter ended June 30, 2022 with no tax adjustment.
Employee Stock Purchase Plan
In August 2010, Orion’s boardBoard of directorsDirectors approved a non-compensatory employee stock purchase plan, or ESPP.“ESPP”. In the three months ended June 30, 2023, Orion issued 700 shares under the following shares from treasury duringESPP plan at a closing market price of $1.63. In the ninethree months ended December 31, 2017:
Shares Issued Under ESPP Plan | Closing Market Price | ||||
Quarter Ended June 30, 2017 | 2,150 | $1.28 | |||
Quarter Ended September 30, 2017 | 2,681 | $1.12 | |||
Quarter Ended December 31, 2017 | 3,446 | $0.88 | |||
Total issued in fiscal 2018 | 8,277 | $0.88 - 1.28 |
Sale of shares
In March 2023, Orion filed a universal shelf registration statement with the Securities and Exchange Commission. Under the shelf registration statement, Orion currently has the flexibility to non-executive employeespublicly offer and sell from time to purchase shares time up to $100 million
15
of its stock.debt and/or equity securities. The loan program has been discontinued and new loans are no longer issued. Asfiling of the shelf registration statement may help facilitate Orion’s ability to raise public equity or debt capital to expand existing businesses, fund potential acquisitions, invest in other growth opportunities, repay existing debt, or for other general corporate purposes.
In March 31, 2017, four thousand dollars of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equity account. During the nine months ended December 31, 2017,2021, Orion entered into agreements withan At Market Issuance Sales Agreement to undertake an “at the counterpartiesmarket” (ATM) public equity capital raising program pursuant to these loans. In exchange forwhich Orion may offer and sell shares of common stock from time to time, having an aggregate offering price of up to $50 million. No share sales have been effected pursuant to the forgiveness of their outstanding loan balance, the employees returned their shares to Orion. As a result of these transactions, 1,230 shares were recorded within treasury stock and the loan balances were eliminated.ATM program through June 30, 2023.
NOTE 1516 — STOCK OPTIONS AND RESTRICTED SHARES
At Orion's 2016 Annual MeetingOrion’s 2019 annual meeting of Shareholdersshareholders held on August 3, 2016, Orion's7, 2019, Orion’s shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the "Plan"“Amended 2016 Plan”). The Amended 2016 Plan increased the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from 1,750,000 shares to 3,500,000 shares (an increase of 1,750,000 shares); added a minimum vesting period for all awards granted under the Amended 2016 Plan (with limited exceptions); and added a specific prohibition on the payment of dividends and dividend equivalents on unvested awards.
The Amended 2016 Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Amended 2016 Plan may consist of stock options, stock appreciation rights, performance shares, performance units, common stock, restricted stock, restricted stock units, incentive awards or dividend equivalent units.
Prior to shareholder approval of the 2016 Omnibus Incentive Plan, the CompanyOrion maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the “Former“2004 Plan”). No new awards are being granted under the Former2004 Plan; however, all awards granted under the Former2004 Plan that wereare outstanding as of August 3, 2016 will continue to be governed by the Former2004 Plan.
Certain non-employee directors have from time to time elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program.
The following amounts of stock-based compensation were recorded (dollars in thousands):
|
| For the Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cost of product revenue |
| $ | 1 |
|
| $ | 1 |
|
General and administrative |
|
| 182 |
|
|
| 250 |
|
Sales and marketing |
|
| 4 |
|
|
| 2 |
|
Research and development |
|
| 1 |
|
|
| 1 |
|
Total |
| $ | 188 |
|
| $ | 254 |
|
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of product revenue | $ | 1 | $ | 7 | $ | 11 | $ | 30 | |||||||
General and administrative | 205 | 283 | 722 | 1,035 | |||||||||||
Sales and marketing | 34 | 64 | 113 | 116 | |||||||||||
Research and development | 10 | 30 | 22 | 71 | |||||||||||
Total | $ | 250 | $ | 384 | $ | 868 | $ | 1,252 |
During the first ninethree months of fiscal 2018,ended June 30, 2023, Orion had the following activity related to its stock-based compensation:compensation. Restricted shares includes both performance-vesting restricted stock and time vesting-restricted stock.
|
| Restricted Shares |
|
| Stock Options |
| ||
Awards outstanding at March 31, 2023 |
|
| 743,454 |
|
|
| 73,136 |
|
Awards granted |
|
| 50,753 |
|
|
| — |
|
Awards vested or exercised |
|
| (206,451 | ) |
|
| — |
|
Awards forfeited |
|
| (5,250 | ) |
|
| (73,136 | ) |
Awards outstanding at June 30, 2023 |
|
| 582,506 |
|
|
| — |
|
Per share weighted average price on grant date |
| $ | 1.66 |
|
|
| — |
|
Restricted Shares | Stock Options | |||
Balance at March 31, 2017 | 1,704,543 | 1,520,953 | ||
Awards granted | 730,410 | — | ||
Awards vested | (592,851 | ) | — | |
Awards forfeited | (296,893 | ) | (811,286 | ) |
Awards outstanding at December 31, 2017 | 1,545,209 | 709,667 | ||
Per share price on grant date | $0.88 - $1.95 | — |
16
As of December 31, 2017,June 30, 2023, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of 2.0 years, was approximately $1.6$1.1 million.
NOTE 1617 — SEGMENTS
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Orion's CODM is the chief executive officer. Previously, Orion has the following businesshad four reportable segments: Orion U.S. MarketsServices Group Division ("USM"OSG"), Orion Engineered Services Division ("OES") and Orion Distribution Services Division ("ODS"). The accounting policies are the same for each business segment as they are on a consolidated basis.
Lighting Segment
The migrated sales are included in Orion's ODS Division.
Maintenance Segment
The Maintenance Segment provides retailers, distributors as Orion continuesand other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities.
Electric Vehicle Charging Segment
The Electric Vehicle Charging Segment offers leading electric vehicle charging expertise, sells and installs sourced electric vehicle charging stations with related software subscriptions and renewals and provides EV turnkey installation solutions with ongoing support to develop its agent distribution strategy. This expansion includes the migration of customers from direct sales previously included in the USM division.
Corporate and Other
Corporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile to consolidated results (dollars in thousands).
|
| Revenues |
|
| Operating Loss |
|
| Total Assets |
| |||||||||||||||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
|
|
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| June 30, 2023 |
|
| March 31, 2023 |
| ||||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lighting Segment |
| $ | 12,621 |
|
| $ | 13,852 |
|
| $ | (766 | ) |
| $ | (1,004 | ) |
| $ | 28,025 |
|
| $ | 25,009 |
|
Maintenance Segment |
|
| 3,754 |
|
|
| 4,054 |
|
|
| (1,840 | ) |
|
| (290 | ) |
|
| 8,250 |
|
|
| 10,372 |
|
Electric Vehicle Charging Segment |
|
| 1,238 |
|
|
| — |
|
|
| (1,934 | ) |
|
| — |
|
|
| 9,945 |
|
|
| 11,501 |
|
Corporate and Other |
|
| — |
|
|
| — |
|
|
| (1,857 | ) |
|
| (2,323 | ) |
|
| 17,926 |
|
|
| 24,697 |
|
|
| $ | 17,613 |
|
| $ | 17,906 |
|
| $ | (6,397 | ) |
| $ | (3,617 | ) |
| $ | 64,146 |
|
| $ | 71,579 |
|
17
Revenues | Operating Income (Loss) | ||||||||||||||
For the Three Months Ended December 31, | For the Three Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Segments: | |||||||||||||||
Orion U.S. Markets | $ | 2,168 | $ | 5,368 | $ | (520 | ) | $ | 367 | ||||||
Orion Engineered Systems | 7,316 | 8,288 | 185 | (81 | ) | ||||||||||
Orion Distribution Services | 7,779 | 6,961 | 224 | 229 | |||||||||||
Corporate and Other | — | — | (1,248 | ) | (1,543 | ) | |||||||||
$ | 17,263 | $ | 20,617 | $ | (1,359 | ) | $ | (1,028 | ) |
Revenues | Operating Income (Loss) | ||||||||||||||
For the Nine Months Ended December 31, | For the Nine Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Segments: | |||||||||||||||
Orion U.S. Markets | $ | 6,388 | $ | 16,462 | $ | (2,970 | ) | $ | 558 | ||||||
Orion Engineered Systems | 18,857 | 22,062 | (2,891 | ) | (878 | ) | |||||||||
Orion Distribution Services | 19,998 | 16,397 | (564 | ) | (132 | ) | |||||||||
Corporate and Other | — | — | (4,968 | ) | (4,823 | ) | |||||||||
$ | 45,243 | $ | 54,921 | $ | (11,393 | ) | $ | (5,275 | ) |
NOTE 18 — ACQUISITION
Acquisition of Voltrek
Effective on October 5, 2022, Orion acquired all the membership interests of Voltrek, an electric vehicle charging station solutions provider for a purchase price of $5.0 million in cash and $1.0 million of shares of common stock of Orion, subject to normal and customary closing adjustments of $0.9 million (the “Voltrek Acquisition”). In addition, depending upon the relative EBITDA growth of Voltrek’s business in fiscal 2023, 2024 and 2025, Orion could pay up to an additional $3.0 million, $3.5 million and $7.15 million, respectively, in earn-out payments. These compensatory payments do not fall within the scope of ASC 805, Business Combinations, and will be expensed over the course of the earn-out periods to the extent they are earned. As of June 30, 2023, Orion recorded $3.0 million to accrued expenses for the fiscal 2023 earn-out opportunity and an additional $2.1 million to other long-term liabilities for the cumulative potential earn-out opportunity which would be paid in fiscal 2026. The Voltrek Acquisition was funded with cash and Orion shares. Voltrek operates as Voltrek, an Orion Energy Systems business. The Voltrek Acquisition leverages Orion’s project management and maintenance expertise into a rapidly growing sector.
Orion has accounted for the Voltrek Acquisition as a business combination. Orion has allocated the purchase price of approximately $6.9 million to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values is recorded as goodwill. The purchase price and closing adjustments were paid in cash and 620,067 shares of common stock with a total fair market value of $1.0 million, which is recorded in the opening balance sheet at fair value of $0.8 million, the discount on which is due to lock-up requirements on the shares.
The following table summarizes the purchase price allocation for Voltrek:
(in thousands) |
| Opening Balance Sheet |
| |
Cash |
| $ | 416 |
|
Accounts receivable |
|
| 1,363 |
|
Revenue earned but not billed |
|
| 325 |
|
Inventory |
|
| 880 |
|
Prepaid expenses and other current assets |
|
| 39 |
|
Property and equipment |
|
| 4 |
|
Goodwill |
|
| 920 |
|
Other intangible assets |
|
| 4,300 |
|
Other long-term assets |
|
| 223 |
|
Accounts payable |
|
| (1,133 | ) |
Accrued expenses and other |
|
| (286 | ) |
Other long-term liabilities |
|
| (180 | ) |
Net purchase consideration |
| $ | 6,871 |
|
Goodwill recorded from the Voltrek Acquisition is attributable to the skillset of the acquired workforce. The goodwill resulting from the Voltrek Acquisition is expected to be deductible for tax purposes. The intangible assets include amounts recognized for the fair value of the trade name, vendor relationship and customer relationships.
The tradename intangible asset was valued using a relief from royalty method. The significant assumptions used include the estimated revenue and royalty rate, among other factors.
The vendor relationship intangible asset was valued using the income approach – excess earnings method. The significant assumptions include estimated revenue, cost of goods sold, and probability of renewal, among other factors.
The customer relationship intangible asset was valued using the income approach – with-and-without method. The significant assumptions include estimated cash flows (including appropriate revenue, cost of revenue and operating expenses attributable to the asset, retention rate, among other factors), and discount rate, reflecting the risks inherent in the future cash flow stream, among other factors.
18
The categorization of the framework used to measure fair value of the intangible assets is considered to be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used.
The following table presents the details of the intangible assets acquired at the date of Voltrek Acquisition (dollars in thousands):
|
| Estimated |
| Estimated Useful Life (Years) |
| ||
Tradename |
| $ | 300 |
|
| 5 |
|
Vendor relationship |
|
| 2,600 |
|
| 7 |
|
Customer relationships |
|
| 1,400 |
|
| 3 |
|
Voltrek's post-acquisition results of operations since October 5, 2022 are included in Orion’s Condensed Consolidated Statements of Operations. The operating results of Voltrek are included in the EV segment. See note 17 — REORGANIZATION OF BUSINESS
Transaction costs related to the nine months ended December 31, 2017, Orion implemented a reorganization and targeted cost savings plan. As a result, Orion entered into separation agreements with 20 employees. DuringVoltrek Acquisition are recorded in acquisition costs in the Condensed Consolidated Statements of Operations. Transaction costs totaled $0.1 million in the three months ended December 31, 2017, Orion recognized approximately nineteenJune 30, 2023 and $14 thousand in savings due to outplacement services not used. For the ninethree months ended December 31, 2017,June 30, 2022, respectively.
If Voltrek was acquired on April 1, 2022, the pro forma Orion recognized $2.0 million of restructuring expense consisting of severance, outplacement services, and continued medical benefits for terminated employees for a limited post-employment period. The restructuring expenserevenue for the three and nine months ended December 31, 2017 is reflected within Orion’s condensed statementJune 30, 2022 would have been $19.1 million and proforma net loss would have been $(3.2) million.
The pro forma information was determined based on the historical results of operations as follows (dollars in thousands):
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Cost of product revenue | $ | (7 | ) | $ | 33 | |
General and administrative | (7 | ) | 1,808 | |||
Sales and marketing | (5 | ) | 178 | |||
Total | $ | (19 | ) | $ | 2,019 |
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Orion Distribution Systems | $ | (5 | ) | $ | 84 | |
Corporate and Other | (14 | ) | 1,935 | |||
Total | $ | (19 | ) | $ | 2,019 |
March 31, 2017 | Additions | Amounts Used | December 31, 2017 | |||||||||
Employee separation costs | $ | — | $ | 1,876 | $ | (1,635 | ) | $ | 241 | |||
Post-employment medical benefits (1) | — | 143 | (4 | ) | 139 | |||||||
Total | $ | — | $ | 2,019 | $ | (1,639 | ) | $ | 380 |
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited consolidated financial statementsConsolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended
Cautionary Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number ofseveral risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2023. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.
Overview
We are a leading designer and manufacturerprovide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of high-performance, energy-efficient LED and other lighting platforms. We research, develop, design, manufacture, market, sell and implement energy management systems consisting primarily of high-performance, energy-efficientThings (“IoT”) enabled control solutions, commercial and industrial interiorelectric vehicle (“EV”) charging infrastructure solutions and exterior lighting systemsmaintenance services. We help our customers achieve their sustainability, energy savings and related services. Ourcarbon footprint reduction goals through innovative technology and exceptional service. We sell our products are targeted for applications in three primaryand services into many vertical markets within the broader commercial and industrial market segments:segment. Primary verticals include: big box retail, manufacturing, warehousing/logistics, commercial office, federal and retail, area lightingmunicipal government, healthcare and industrial applications, although we do sellschools. Our services consist of turnkey installation and install products into other markets.system maintenance. Virtually all of our sales occur within North America.
Our lighting products consist primarily of light emitting diode ("LED")LED lighting fixtures.fixtures, many of which include IoT enabled control systems. Our principal lighting customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies ("ESCOs"(“ESCOs”) and electrical contractors.. Currently, substantially allmost of our lighting products are manufactured at our leased production facility locationlocated in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties as the LED market continues to evolve and in order to provide versatility in our product development.
We differentiate ourselves from our competitors through offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer (which we call “Customers for Life”). We completed the Stay-Lite Lighting acquisition on January 1, 2022, which has allowed us to further expand our maintenance services capabilities. We completed the acquisition of Voltrek on October 5, 2022, which has allowed us to further expand our turnkey services capabilities as well as capitalize on the rapidly growing market for EV charging solutions.
We believe the market for LED lighting products has shiftedand related controls continues to LED lighting systems, and that the customer base for our legacy high intensity fluorescent ("HIF") technology products will continue to decline. Compared to our legacy lighting systems, we believe that LED lighting technology allows for better optical performance, significantly reduced maintenance costs due to performance longevity and reduced energy consumption.grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied
20
by fluorescent or other legacylighting technologies. Our LED lighting technologies have becomebeen the primary component of our revenue as we continue to strive to be a leader in the LED market. Although
In fiscal 2022, we continuecontinued to sell somesuccessfully capitalize on our capability of being a full service, turn-key provider of LED lighting products usingand controls systems with design, build, installation and project management services, as we continued a very large project for a major national account. As a result of this success, we have evolved our legacy HIF technology, we do not buildbusiness strategy to stock HIFfocus on further expanding the nature and scope of our products and instead buildservices offered to committed customer orders as received.our customers. This further expansion of our products and services includes pursuing projects to develop recurring revenue streams, including providing lighting and electrical maintenance services and utilizing control sensor technology to collect data and assisting customers in the digitization of this data, along with other potential services. We planalso are pursuing the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products and services that we offer to continueour customers. While we currently intend to primarily focus on developingpursue these expansion strategies organically, we also may explore potential additional business acquisitions, like our acquisition of Stay-Lite Lighting and selling innovative LED products.
We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring revenue from period to period and weannual revenue. However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the agreements or a substantial volume of purchase orders under the agreements are delayed or terminated. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or the termination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results of operations in any given future period.
We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a “retrofit.”"retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical contractors, electrical distributors and ESCOs to sell to their own customer bases.
The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 15%10% to 50%. As a result, a change in the total mix of our sales towardamong higher or lower margin products can cause our profitability to fluctuate from period to period.
Our fiscal year ends on March 31. Our current fiscal year ends on March 31, 2024 and is referred to as “fiscal 2024”. We refer to our just completed fiscal year, which ended on March 31, 2023, as "fiscal 2023", and our prior fiscal year which ended on March 31, 20172022 as "fiscal 2017", and our current fiscal year, which ends on March 31, 2018, as “fiscal 2018.”2022". Our fiscal first quarter of each fiscal year ends on June 30,
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Orion has threePreviously, we had four reportable segments: Orion U.S. MarketsServices Group Division ("USM"OSG"), Orion Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS").
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Cost of product revenue | $ | (7 | ) | $ | 33 | |
General and administrative | (7 | ) | 1,808 | |||
Sales and marketing | (5 | ) | 178 | |||
Total | $ | (19 | ) | $ | 2,019 |
Three Months Ended December 31, | Nine Months Ended December 31, | |||||
2017 | 2017 | |||||
Orion Distribution Systems | $ | (5 | ) | $ | 84 | |
Corporate and Other | (14 | ) | 1,935 | |||
Total | $ | (19 | ) | $ | 2,019 |
21
Acquisition
Acquisition of approximately $1.5 million, which is included in the total estimated annual cost savings of $6.0 million discussed above. As these are fourth quarter events, restructuring expense related to these actions will be recognized in the fourth quarter of fiscal 2018.
Effective on October 5, 2022, we reviewed our definite and indefinite lived assets for impairment as a result of our lower than anticipated operating results and recent forecast revisions. As a result of these assessments, we determined that the carrying value of our indefinite lived intangible asset related to the Harris trade name exceeded the asset’s fair value. As a result, we recorded an impairment charge of $0.7 million. No impairment was recorded in the three months ended December 31, 2017. A change in these assumptions or a change in circumstances could result in an impairment charge in a future period.
Results of Operations - Three Months Ended December 31, 2017June 30, 2023 versus Three Months Ended December 31, 2016
The following table sets forth the line items of our condensed consolidated statementsCondensed Consolidated Statements of operationsOperations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (dollars in thousands, except percentages):
Three Months Ended December 31, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Amount | Amount | % Change | % of Revenue | % of Revenue | ||||||||||||
Product revenue | $ | 15,993 | $ | 19,259 | (17.0 | )% | 92.6 | % | 93.4 | % | ||||||
Service revenue | 1,270 | 1,358 | (6.5 | )% | 7.4 | % | 6.6 | % | ||||||||
Total revenue | 17,263 | 20,617 | (16.3 | )% | 100.0 | % | 100.0 | % | ||||||||
Cost of product revenue | 11,181 | 13,577 | (17.6 | )% | 64.8 | % | 65.8 | % | ||||||||
Cost of service revenue | 966 | 885 | 9.2 | % | 5.6 | % | 4.3 | % | ||||||||
Total cost of revenue | 12,147 | 14,462 | (16.0 | )% | 70.4 | % | 70.1 | % | ||||||||
Gross profit | 5,116 | 6,155 | (16.9 | )% | 29.6 | % | 29.9 | % | ||||||||
General and administrative expenses | 2,878 | 3,541 | (18.7 | )% | 16.7 | % | 17.2 | % | ||||||||
Sales and marketing expenses | 2,981 | 3,147 | (5.3 | )% | 17.3 | % | 15.3 | % | ||||||||
Research and development expenses | 616 | 495 | 24.4 | % | 3.5 | % | 2.4 | % | ||||||||
Loss from operations | (1,359 | ) | (1,028 | ) | (32.2 | )% | (7.9 | )% | (5.0 | )% | ||||||
Interest expense | (102 | ) | (65 | ) | (56.9 | )% | (0.5 | )% | (0.3 | )% | ||||||
Interest income | 5 | 7 | (28.6 | )% | — | % | — | % | ||||||||
Loss before income tax | (1,456 | ) | (1,086 | ) | (34.1 | )% | (8.4 | )% | (5.3 | )% | ||||||
Income tax benefit | (23 | ) | — | NM | (0.1 | )% | — | % | ||||||||
Net loss | $ | (1,433 | ) | $ | (1,086 | ) | (32.0 | )% | (8.3 | )% | (5.3 | )% |
|
| Three Months Ended June 30, |
| |||||||||||||||||
|
| 2023 |
|
| 2022 |
|
|
|
|
| 2023 |
|
| 2022 |
| |||||
|
| Amount |
|
| Amount |
|
| % |
|
| % of |
|
| % of |
| |||||
Product revenue |
| $ | 13,671 |
|
| $ | 13,483 |
|
|
| 1.4 | % |
|
| 77.6 | % |
|
| 75.3 | % |
Service revenue |
|
| 3,942 |
|
|
| 4,423 |
|
|
| (10.9 | )% |
|
| 22.4 | % |
|
| 24.7 | % |
Total revenue |
|
| 17,613 |
|
|
| 17,906 |
|
|
| (1.6 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of product revenue |
|
| 10,059 |
|
|
| 10,385 |
|
|
| (3.1 | )% |
|
| 57.1 | % |
|
| 58.0 | % |
Cost of service revenue |
|
| 4,383 |
|
|
| 3,967 |
|
|
| 10.5 | % |
|
| 24.9 | % |
|
| 22.2 | % |
Total cost of revenue |
|
| 14,442 |
|
|
| 14,352 |
|
|
| 0.6 | % |
|
| 82.0 | % |
|
| 80.2 | % |
Gross profit |
|
| 3,171 |
|
|
| 3,554 |
|
|
| (10.8 | )% |
|
| 18.0 | % |
|
| 19.8 | % |
General and administrative expenses |
|
| 5,739 |
|
|
| 3,754 |
|
|
| 52.9 | % |
|
| 32.6 | % |
|
| 21.0 | % |
Acquisition related costs |
|
| 53 |
|
|
| 14 |
|
|
| 278.6 | % |
|
| 0.3 | % |
|
| 0.1 | % |
Sales and marketing expenses |
|
| 3,296 |
|
|
| 2,889 |
|
|
| 14.1 | % |
|
| 18.7 | % |
|
| 16.1 | % |
Research and development expenses |
|
| 480 |
|
|
| 514 |
|
|
| (6.6 | )% |
|
| 2.7 | % |
|
| 2.9 | % |
Loss from operations |
|
| (6,397 | ) |
|
| (3,617 | ) |
|
| 76.9 | % |
|
| (36.3 | )% |
|
| (20.2 | )% |
Other income |
|
| — |
|
|
| (1 | ) |
|
| (100.0 | )% |
|
| — |
|
|
| (0.0 | )% |
Interest expense |
|
| (176 | ) |
|
| (17 | ) |
|
| 935.3 | % |
|
| (1.0 | )% |
|
| (0.1 | )% |
Amortization of debt issue costs |
|
| (24 | ) |
|
| (15 | ) |
|
| 60.0 | % |
|
| (0.1 | )% |
|
| (0.1 | )% |
Interest income |
|
| 2 |
|
|
| — |
|
| NM |
|
|
| 0.0 | % |
|
| 0.0 | % | |
Loss before income tax |
|
| (6,595 | ) |
|
| (3,650 | ) |
|
| 80.7 | % |
|
| (37.4 | )% |
|
| (20.4 | )% |
Income tax expense (benefit) |
|
| 42 |
|
|
| (815 | ) |
| NM |
|
|
| 0.2 | % |
|
| (4.6 | )% | |
Net loss |
| $ | (6,637 | ) |
| $ | (2,835 | ) |
|
| 134.1 | % |
|
| (37.7 | )% |
|
| (15.8 | )% |
*NM - Not Meaningful
Revenue, Cost of Revenue and Gross Margin.
Product revenue increased 1.4%, or $0.2 million, for the first quarter of fiscal 2024 versus the first quarter of fiscal 2023. Service revenue decreased 10.9%, or $0.5 million, for the first quarter of fiscal 2024 versus the first quarter of fiscal 2023. The resulting decrease in total revenue was due to variability in the timing of larger lighting projects offset by the addition of EV revenue. The decrease in the first quarter revenue was partially offset by revenues due to the acquisition Voltrek. Cost of product revenue decreased22
Operating Expenses
General and Administrative.
General and administrative expensesFor the Three Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 2,168 | $ | 5,368 | (59.6 | )% | ||||
Operating (loss) income | $ | (520 | ) | $ | 367 | NM | ||||
Operating margin | (24.0 | )% | 6.8 | % |
Acquisition Related Costs. Acquisition related costs were relatively flat, in sales period over period, including the migrationfirst quarter of salesfiscal 2024 compared to ODS, resultingthe first quarter of fiscal 2023.
Sales and Marketing. Sales and marketing expenses increased 14.1%, or $0.4 million, in lost operating expense leverage.
Research and Development. Research and development expenses were relatively flat, in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.
Lighting Division
Our lighting division develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. OESOur lighting division provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and schools.
The following table summarizes our OES segmentlighting division operating results (dollars in thousands):
For the Three Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 7,316 | $ | 8,288 | (11.7 | )% | ||||
Operating income (loss) | $ | 185 | $ | (81 | ) | NM | ||||
Operating margin | 2.5 | % | (1.0 | )% |
|
| Three Months Ended June 30, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| % |
| |||
Revenues |
| $ | 12,621 |
|
| $ | 13,852 |
|
|
| (8.9 | )% |
Operating loss |
| $ | (766 | ) |
| $ | (1,004 | ) |
|
| 23.7 | % |
Operating margin |
|
| (6.1 | )% |
|
| (7.2 | )% |
|
|
|
Lighting division revenue decreased in the thirdfirst quarter of fiscal 20182024 decreased by 11.7%8.9%, or $1.0$1.2 million compared to the thirdfirst quarter of fiscal 2017 primarily as2023. The decrease in lighting division revenue was due to variability in the timing of larger lighting projects. The decrease in corresponding operating loss in this segment is a result of improved gross margin.
Maintenance Division
Our maintenance division provides retailers, distributors and other businesses with maintenance, repair and replacement services for the timing of delivery of our turnkey projectslighting and reduced fluorescent purchases by a large retail customer.
The following table summarizes our ODS segmentmaintenance division operating results (dollars in thousands):
For the Three Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 7,779 | $ | 6,961 | 11.8 | % | ||||
Operating income | 224 | 229 | (2.2 | )% | ||||||
Operating margin | 2.9 | % | 3.3 | % |
|
| Three Months Ended June 30, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| % |
| |||
Revenues |
| $ | 3,754 |
|
| $ | 4,054 |
|
|
| (7.4 | )% |
Operating loss |
| $ | (1,840 | ) |
| $ | (290 | ) |
|
| (534.5 | )% |
Operating margin |
|
| (49.0 | )% |
|
| (7.2 | )% |
|
|
|
Maintenance division revenue increased in the thirdfirst quarter of fiscal 20182024 decreased by 11.8%7.4%, or $0.8$0.3 million, compared to the thirdfirst quarter of fiscal 2017,2023, primarily due to an increasea decrease in select distributor sales.
23
Electric Vehicle Charging Division
Our EV division offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.
The following table summarizes our EV segment operations results (dollars in thousands):
|
| Three Months Ended June 30, | ||||||||
|
| 2023 |
|
| 2022 |
|
| % | ||
Revenues |
| $ | 1,238 |
|
| $ | — |
|
| NM |
Operating loss |
| $ | (1,934 | ) |
| $ | — |
|
| NM |
Operating margin |
|
| (156.2 | )% |
|
| — | % |
|
|
* NM - Not Meaningful
EV segment revenue increased period over period,generated by Voltrek in the ODS segment’s operating results remained relatively flat as compared to the thirdfirst quarter of fiscal 2017 due to an increase2024 was $1.2 million. Operating loss in selling expenses.
Nine Months Ended December 31, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Amount | Amount | % Change | % of Revenue | % of Revenue | ||||||||||||
Product revenue | $ | 41,883 | $ | 52,286 | (19.9 | )% | 92.6 | % | 95.2 | % | ||||||
Service revenue | 3,360 | 2,635 | 27.5 | % | 7.4 | % | 4.8 | % | ||||||||
Total revenue | 45,243 | 54,921 | (17.6 | )% | 100.0 | % | 100.0 | % | ||||||||
Cost of product revenue | 30,587 | 36,748 | (16.8 | )% | 67.6 | % | 66.9 | % | ||||||||
Cost of service revenue | 3,209 | 1,748 | 83.6 | % | 7.1 | % | 3.2 | % | ||||||||
Total cost of revenue | 33,796 | 38,496 | (12.2 | )% | 74.7 | % | 70.1 | % | ||||||||
Gross profit | 11,447 | 16,425 | (30.3 | )% | 25.3 | % | 29.9 | % | ||||||||
General and administrative expenses | 11,370 | 11,040 | 3.0 | % | 25.1 | % | 20.1 | % | ||||||||
Impairment of intangible assets | 710 | — | NM | 1.6 | % | — | % | |||||||||
Sales and marketing expenses | 9,241 | 9,167 | 0.8 | % | 20.4 | % | 16.7 | % | ||||||||
Research and development expenses | 1,519 | 1,493 | 1.7 | % | 3.4 | % | 2.7 | % | ||||||||
Loss from operations | (11,393 | ) | (5,275 | ) | (116.0 | )% | (25.2 | )% | (9.6 | )% | ||||||
Other income | — | 190 | NM | — | % | 0.3 | % | |||||||||
Interest expense | (308 | ) | (203 | ) | (51.7 | )% | (0.7 | )% | (0.4 | )% | ||||||
Interest income | 12 | 31 | (61.3 | )% | — | % | 0.1 | % | ||||||||
Loss before income tax | (11,689 | ) | (5,257 | ) | (122.4 | )% | (25.9 | )% | (9.6 | )% | ||||||
Income tax (benefit) expense | (23 | ) | (261 | ) | NM | (0.1 | )% | (0.5 | )% | |||||||
Net loss | $ | (11,666 | ) | $ | (4,996 | ) | (133.5 | )% | (25.8 | )% | (9.1 | )% |
For the Nine Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 6,388 | $ | 16,462 | (61.2 | )% | ||||
Operating (loss) income | $ | (2,970 | ) | $ | 558 | NM | ||||
Operating margin | (46.5 | )% | 3.4 | % |
For the Nine Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 18,857 | $ | 22,062 | (14.5 | )% | ||||
Operating income (loss) | $ | (2,891 | ) | $ | (878 | ) | (229.3 | )% | ||
Operating margin | (15.3 | )% | (4.0 | )% |
For the Nine Months Ended December 31, | ||||||||||
2017 | 2016 | % Change | ||||||||
Revenues | $ | 19,998 | $ | 16,397 | 22.0 | % | ||||
Operating loss | (564 | ) | (132 | ) | NM | |||||
Operating margin | (2.8 | )% | (0.8 | )% |
Liquidity and Capital Resources
Overview
We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund targeted our budgeted capital expenditures and working capital needs for at least one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report.
We had approximately $10.6$8.2 million in cash and cash equivalents as of December 31, 2017,June 30, 2023, compared to $17.3$16.0 million at March 31, 2017.2023. Our cash position decreased primarily as a result of our netan operating loss separation payments to terminated employees in conjunction with our management reorganization and cost reduction initiatives, andan overall use of working capital during the net repaymentfirst quarter of $3.0 million on our revolving credit facility.
Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost reduction initiatives,containment, working capital management and capital expenditures, pending or future litigation resultsexpenditures. While we believe that we will likely have adequate available cash and cost containment measures. In addition, we tendequivalents and credit availability under our Credit Agreement to experience highsatisfy our currently anticipated working capital costs when we increase sales from existing levels. Basedand liquidity requirements for at least the next 12 months based on our current expectations, whilecash flow forecast, if we anticipate realizing improved operating results in the future, we also currently believe thatexperience significant liquidity constraints, we may experience negative working capital cash flows during some interim periods.
Cash Flows
The following table summarizes our cash flows for the ninethree months ended December 31, 2017June 30, 2023 and 20162022 (in thousands):
Nine Months Ended December 31, | |||||||
2017 | 2016 | ||||||
Operating activities | $ | (3,081 | ) | $ | 266 | ||
Investing activities | (521 | ) | 1,972 | ||||
Financing activities | (3,142 | ) | 1,338 | ||||
Increase (decrease) in cash and cash equivalents | $ | (6,744 | ) | $ | 3,576 |
|
| Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating activities |
| $ | (7,327 | ) |
| $ | (5,005 | ) |
Investing activities |
|
| (413 | ) |
|
| (85 | ) |
Financing activities |
|
| (3 | ) |
|
| 48 |
|
Decrease in cash and cash equivalents |
| $ | (7,743 | ) |
| $ | (5,042 | ) |
Cash Flows Related to Operating Activities.
CashCash used in operating activities for the first nine monthsquarter of fiscal 20182024 was $3.1$7.3 million and consisted of aour net loss of $6.6 million adjusted for non-cash expense items of $7.8 million and net cash provided byused in changes in operating assets and liabilities of $4.7 million.
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Cash provided byused in operating activities for the first nine monthsquarter of fiscal 20172023 was $0.3$5.0 million and consisted of net cash provided by changes in operating assets and liabilities of $1.3 million and aour net loss of $2.8 million adjusted for non-cash expense items of $1.0 million. Cashand net cash used byin changes in operating assets and liabilities consistedworking capital of an increase$2.0 million, the largest of $0.8which was a $2.5 million decrease in accounts receivable due to the increase in lighting revenue and the timing of collections from customers at period end, an increase of inventory by $0.2 million due to the timing of product shipments at quarter end, a decrease of $0.7 million in accrued expenses due to the payment of a state tax liability and an increase in deferred contract costs of $1.3 million due to the timing of project completions. Cash provided by changes in operating assets and liabilities included an increase of $0.6 million in accounts payable due to the timing of payments on balances at quarter end, a decrease in prepaid and other assets of $3.3 million primarily due to the timing of project billings, and an increase in deferred revenue of $0.4 million due to the timing of project completions.
Cash Flows Related to Investing Activities.
Cash provided byused in investing activities was $2.0of $0.1 million in the first nine monthsquarter of fiscal 2017 which2023 consisted primarily of $2.6 millionpurchases of proceeds from the sale of the Manitowoc manufacturing facility. Cash used by investing activities for the first nine months of fiscal 2017 was $0.4 million for capital improvements related to production enhancementsproperty and technology purchases and $0.2 million of additions to patents.
Cash Flows Related to Financing Activities.
Cash usedCash provided by financing activities was $1.3 million forof $48 thousand in the first nine monthsquarter of fiscal 2017. This included $0.8 million2023 consisted primarily of cash used for the repayment of long-term debt, $11,000 for stock option exercises and stock related tax settlements, and net proceeds from the revolving credit facility of $2.2 million.
Working Capital
Our net working capital as of December 31, 2017June 30, 2023 was $13.4$20.6 million, consisting of $30.6$43.0 million in current assets and $17.2$22.3 million in current liabilities. Our net working capital as of March 31, 20172023 was $25.5$25.9 million, consisting of $43.9$50.4 million in current assets and $18.4$24.5 million in current liabilities. Our current accounts receivable balance decreased by $0.5 million from the fiscal 2017 year end due to the decline in sales and the timing of customer collections. Our inventory decreased from the fiscal 2017 year end by $4.8 million due to continued management of purchasing activities and inventory management initiatives. Our prepaid and other current assets decreased by $1.3 million due to a decrease in unbilled revenue as a result of the timing of customer billings. Our accounts payable remained relatively flat compared to fiscal 2017 year end. Our accrued expenses decreased from our fiscal 2017 year end by $0.8 million due to the payment of commissions and a decrease in accrued bonuses in the current fiscal year.
We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Because of recent supply chain challenges, we have been making additional incremental inventory purchases. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.
Indebtedness
Revolving Credit Agreement
On December 29, 2020, we entered into a new $25 million Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our prior $20.15 million secured revolving credit and security agreement ("(the “Prior Credit Agreement"Agreement”) that.
The replacement of the Prior Credit Agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans.
The Credit Agreement provides for a five-year $25.0 million revolving credit facility ("(the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit Facility")Facility are subject to a borrowing base requirement based on eligible receivables, inventory and inventory.cash. As of December 31, 2017 ourJune 30, 2023, the borrowing base was approximately $3.8 million. The Credit Facility has a maturity date of February 6, 2019 and includes a $2.0 million sublimit for the issuance of letters of credit. As of December 31, 2017, we had no outstanding letters of credit. Borrowings outstanding as of December 31, 2017, amounted to approximately $3.6 million and are included in non-current liabilities in the accompanying condensed consolidated balance sheet. We estimate that as of December 31, 2017, we were eligible to borrow an additional $0.2 million under the Credit Facility based upon current levelssupports $18.6 million of eligible inventory and accounts receivable.
The Credit Agreement contains additional customary covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on our stock, redeem or repurchase shares of our stock, or pledge or dispose of assets. We were in compliance with our covenants in the Credit Agreement as of December 31, 2017.
Effective November 4, 2022, we, along with the Lender, executed Amendment No. 1 to the Credit Agreement. The primary purpose of the amendment was to include the assets of our acquired subsidiaries, Stay-Lite Lighting and each subsidiary’s personal property (excluding variousVoltrek as secured collateral under the Credit Agreement. Accordingly, eligible assets relating to customer OTAs)of Stay-Lite and a mortgage on certain real property.
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Backlog
Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $6.8$19.0 million and $7.3$17.2 million as of December 31, 2017June 30, 2023 and March 31, 2017,2023, respectively. We generally expect our backlog to be recognized as revenue within one year.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
We have experienced increases in various input costs including labor, components and transportation in the past year. In response, we have implemented multiple price increases, and we have substantially mitigated the inflationary pressures, such that our results from operations have not been and we do not expect them to be, materially affected to date by inflation.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation warranty reserves and income taxes. The estimates of forecasted cash flows are used in the assessment for impairment of long-lived assets and the realizability of deferred tax assets. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, 2017.2023. For the three monthsquarter ended December 31, 2017,June 30, 2023, there were no material changes in our accounting policies.
Recent Accounting Pronouncements
For a complete discussion of recent accounting pronouncements, refer to Note 23 in the condensed consolidated financial statementsCondensed Consolidated Financial Statements included elsewhere in this report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in our Annual Report on Form 10-K for the year ended March 31, 2017.2023. There have been no material changes to such exposures since March 31, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishingdisclosure controls and maintaining adequate internal control over financial reporting (as definedprocedures are designed to ensure that information required to be disclosed by us in Rules 13a-15(f) and 15d-15(f)the reports that we file or submit under the Exchange Act). Internal control over financial reportingAct is a process designed by, or under the supervision of,accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the boardas appropriate, to allow timely decisions regarding required disclosure.
As of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) for the quarter ended December 31, 2017,June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than with respect to the implementation of our Remediation Plans, as described above.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date hereof,of this report, we are unable to currently assess whetherdo not believe that the final resolution of any of such claims or legal proceedings maywill have a material adverse effect on Orion’sour future results of operations.
See Note 14, "Commitments15 – Commitments and Contingencies, - Litigation", to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I - Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2023, which we filed with the SEC on June 13, 201712, 2023 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
31.1 |
31.2 | |
32.1 | |
32.2 | |
101.INS | Inline XBRL Instance |
101.SCH | Inline XBRL Taxonomy extension schema |
101.CAL | Inline XBRL Taxonomy extension calculation linkbase |
101.DEF | Inline XBRL Taxonomy extension definition linkbase document+ |
101.LAB | Inline XBRL Taxonomy extension label linkbase |
101.PRE | Inline XBRL Taxonomy extension presentation linkbase |
document+ | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, has been formatted in Inline XBRL. |
+ Filed herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 7, 2018.
ORION ENERGY SYSTEMS, INC. | ||
By | /s/ | |
J. Per Brodin | ||
Chief Financial Officer | ||
(Principal Financial Officer and Authorized Signatory) |
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